Last month, March of 2020, The CARES Act was passed in light of the impacts of COVID-19. Specifically, there were changes affecting  Bankruptcies – both current and prospective cases.

The CARES Act (the “Act”) excludes Coronavirus related payments from the definition of disposable income and the Bankruptcy Estate, i.e. the government stimulus check. Receiving the stimulus check within 6-months of filing a Chapter 7 Bankruptcy will therefore not disqualify a Debtor from filing a Bankruptcy under Chapter 7. While the Act does not explicitly state this applies to Chapter 13, most Trustees, even before the passing of the Act, have stated they would not be pursuing that income.

For currently filed cases, a Chapter 13 payment Plan (typically having a maximum duration of 5-years or 60-months) if “confirmed” prior to the passing of the Act, can be modified and the payments extended to 84-months or 7-years. Since many Chapter 13 Plans are based on paying mortgage or auto loan arrears, or curing tax debt, this will provide significant relief, and a lower payment, for Chapter 13 Debtors.  The longer the payment plan, the more affordable the payment becomes.

The modification provision applies to Debtors who have experienced a financial hardship related either directly or indirectly to COVID. By adding “indirectly” to the Act, the ability to modify Plans is broad. For example, “directly or indirectly related” could include the following scenarios:

• if a Debtor was diagnosed with COVID, 

• if the Debtor’s relative living in their household was diagnosed,

• if the Debtor is providing care to a diagnosed person,

• if the Debtor’s child cannot attend school,

• if the Debtor can’t go to work because of quarantine or due to being advised by a medical provider to self-quarantine,

• if a Debtor couldn’t start work with a prospective employer,

• if the Debtor has become the breadwinner after the death of the head of their household,

• if the Debtor had to quit their job as a direct result of COVID,

• if the Debtor’s place of employment closed, or

• if the circumstances meet any additional criteria established by the Secretary for unemployment assistance

If you are self-employed, this applies to you.

For current Chapter 13 Bankruptcies where the Plan was not yet confirmed before the enactment of the Act, nothing in the Bankruptcy Code, specifically section 1328, prevents the Plan from being modified by request. So if the Trustee or creditors do not object, or if any objections can be overcome or settled, it can be modified. Therefore, it would still be beneficial to seek relief if necessary. If you are a current Chapter 13 Debtor struggling to make your monthly payments, be sure to reach out to your Attorney to discuss.

This article addresses just a small portion of The CARES Act. The Act has also provided relief under student loans, the housing market, and several other industries.

Whether or not you have been affected by the Coronavirus, if you are struggling financially, the Attorneys at CGA Law firm can help. Please contact us today to schedule a telephonic consultation to discuss your options.

Attorney Rohrbaugh is an associate at CGA Law Firm providing assistance to clients in Bankruptcy, Estate Planning and Administration, Business Formation and Representation, and Workouts, as well as other legal needs. Reach her at [email protected] or 717.718.8336.